Share Buybacks a Win-Win in Japan

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

HEARD IN ASIA: In Japan, the Buyback Defense

• Summary: Japanese publicly listed companies are showing more interest in being shareholder friendly these days. An unprecedented amount has been spent on share repurchases in the first half of the year and 2005 was a record year for dividends paid. Share buybacks totaled $9.1 billion in H1-06 versus $2.9 in the same period last year and $585 million for all of 2001. Dividends paid in 2005 totaled $45.27 billion, which is a 26% increase over 2004 and 56% higher than in 2003. Although management may be more interested in protecting it and the firm from unsolicited takeovers, shareholders are benefiting nonetheless as share prices are on the rise from companies taking measures such as buybacks and raising dividends. Companies across Japan hope a higher share price will prevent shareholders from selling out to a hostile bidder. At the same time, the use of cash in buybacks and dividends reduces cash on the balance sheet making a particular firm less attractive as a takeover target. Some firms are still resorting to adopting poison-pill defenses but even in these cases share prices are seen rising in hostile takeover bids.

• Comment on related stocks/ETFs: For non-Japanese individual investors it can be difficult to screen for likely M&A targets and the transaction costs as well as a lack of research material pose another challenge. One's best bet may be to consider Wisdom Tree's (WSDT) new dividend-weighted ETFs covering Japan: Small Cap Dividend Fund (DFJ), High-Yielding Equity Fund (DNL), and the Total Dividend Fund (DXJ). If interested in trying to play individual stocks the frequently published investment newsletters at Japan Investments are recommended reading.